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ISDA Publishes EMIR Delegated Reporting Agreement

Introduction

On 13 January 2014, ISDA and the FOA published their jointly drafted ISDA/FOA EMIR Reporting Delegation Agreement (the “Agreement”), designed to help market participants meet their obligations under Article 9 of EMIR by providing a bilateral standard form contract which can be used to document delegated reporting arrangements.

The Agreement

Under the Agreement, an entity offering delegated reporting services (the “Reporting Delegate”) agrees, either itself or via a third party, to submit “Relevant Data” with respect to “Relevant Transactions” to a “Relevant Trade Repository” on behalf of a “Client” by the “Reporting Deadline” specified in Article 9 of EMIR.  For its part, the Client is obliged to provide any Counterparty Data required in order to facilitate the Reporting Delegate’s compliance with its obligations.

The Schedules to the Agreement allow counterparties to tailor their arrangements by specifying such things as:

  • The types of transaction to be reported;
  • The identity of the Reporting Delegate, affiliates of the Reporting Delegate, the Relevant Trade Repository and any Process agents;
  • A date in relation to which delegated reporting services will commence;
  • Whether “Relevant Data” is to include Counterparty Data and/or Common data[1] and whether any data is not to be reported;
  • Notice periods for amending and terminating the Agreement;
  • Contact information;
  • Whether existing confidentiality provisions are to be waived so as to facilitate trade reporting;
  • Restrictions around the use of static data[2]; and
  • “Operational and Procedural Provisions”, which detail the actual mechanics of delegated reporting arrangements.

The Potential Sticking Points

Whilst at its heart the Agreement is very straightforward, a set of ‘usual suspect’ provisions exist within the standard form which will be the focus of much wrangling between rival legal teams.  Perhaps top of the list is the indemnity provided by the Client.  This protects the Reporting Delegate and its affiliates from all losses incurred in connection with any claim brought by any third party, or any information provided to the Reporting Delegate and/or its affiliates by the Client, unless caused by the gross[3] negligence, wilful default or fraud of the Reporting Delegate or its affiliates.

Another possible bone of contention is the degree of discretion retained by the Reporting Delegate under the standard form of the Agreement.  The Reporting Delegate can decide whether the Reporting Obligation has arisen, the characterisation of a Relevant Transaction and, where Relevant Data includes Common Data, the Common Data.  The only real restriction on the Reporting Delegate is that it must use reasonable case in exercising its discretion.  In addition, the Reporting Delegate may, by written notice to the Client, amend (in whole or in part) the Agreement and any operational and procedural documents to accommodate any change in law, rule, regulation or even operational requirement.  The Client is entitled to reject any such change but, if it does so, the Agreement will terminate on a notice period specified within the schedules.

Perhaps less controversial are the limitations placed on the liability of the Reporting Delegate.  Under the standard form of the Agreement, the Reporting Delegate must perform its duties with reasonable care and is responsible for the accuracy of its own information and that of its affiliates.  Beyond this, it is not liable for any loss suffered by the Client or any failure to report, except to the extent caused by it or its affiliates’ gross[4] negligence, wilful default or fraud.  Moreover, it is not liable for any failure to provide any services to the extent caused by any:

  • breach of the Agreement by the Client;
  • act or omission of the Client, any Relevant Trade Repository or any third party service provider; or
  • compliance by the Reporting Delegate with any law or the requirements of any third party service provider or Relevant Trade Repository.

If inaccurate data is submitted to any Relevant Trade Repository, the Client’s only real remedy is a commitment on the part of the Reporting Delegate, firstly, to notify the Client on become aware of the inaccuracy[5] and, subsequently, to use reasonable efforts, acting in good faith and a commercially reasonable manner, to resolve any such error.

Conclusion

Transaction reporting currently represents every EMIR project manager’s biggest headache.  The 12 February deadline is looming and the industry has not yet fully understood the regulatory requirements of EMIR reporting, never mind completed the infrastructure build necessary to actually allow reporting to commence.  In this context, delegated reporting appeared – and remained – as little more than a dot on the horizon.  Until now that is.  The publication of the ISDA/FOA EMIR Reporting Delegation Agreement provides the industry with the tools it needs in order to start documenting delegated reporting arrangements.  Whilst the indemnity is arguably a step too far, at first reading, it is to be commended as an extremely good template, a valuable contribution to the industry’s efforts to comply and a genuine attempt to reach a middle ground between the competing demands of the sell-side and the buy-side.

Most sell-side firms which intend to offer delegated reporting services view this as a defensive move, designed purely to avoid losing market share to competitors.  It is feared as the likely source of operational headaches rather than embraced as a potential source of profit.  Viewed in this light, the reluctance of the sell-side to accept liability within the standard form of the Agreement becomes more understandable.  For their part, the buy-side, unable to offload legal responsibility for reporting in any event, require assistance with the operational elements of EMIR reporting.  The general sense is that in this instance, unlike over EMIR counterparty classification in which sell-side attempts to get clients to confirm status were often rebuffed (at least until the launch of ISDA’s online tool), the buy-side has a greater need for sell-side assistance.  Either way, the greatest challenge again seems to be one of resource.  The sell-side faces the task of finding the capacity to execute yet another client outreach programme in a very truncated timeframe.  Given sell-side limitations on resource and risk appetite and the buy-side’s need to commence reporting in the very near future, an outbreak of realpolitik seems likely.  Realistically, however, this may entail a greater degree of compromise and pragmatism on the part of the buy-side, at least in the short-term, if they wish to successfully delegate the reporting of their trades prior to 12 February.


[1] As such terms are defined in Commission Delegated Regulation (EU) No 148/2013 of 19 December 2013 with regard to regulatory technical standards on the minimum details of the data to be reported to trade repositories

[2] Being fields in the list of Counterparty Data which is not expected to change frequently (or at least not on a trade by trade basis)

[3] This term is square bracketed in the standard form of the Agreement as being a negotiation point

[4] Again, this term is square bracketed in the standard form of the Agreement as a point of negotiation

[5] And then only if required to do so in accordance with the Operational and Procedural Provisions

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